Finally! The first stimulus checks should start to reach Americans as early as this weekend. Those first payments should arrive by way of direct deposit into people’s bank accounts, the White House told reporters.
The stimulus checks of up to $1,400 are a key feature of the $1.9 trillion American Rescue Plan, signed by President Biden on Thursday. The coronavirus pandemic relief bill aims to help millions of Americans who are aching financially from the Covid-19 crisis.
This third round of stimulus payments provides for checks – direct deposits into bank accounts in many cases – that are larger per person than either of the first two rounds, which distributed payments of $1,200 last spring and $600 in December.
But the latest stimulus checks will not go to higher income Americans. Following eligibility rules put in place at the insistence of more fiscally cautious Senate Democrats, income eligibility for the payments will have lower maximum income ceilings.
X
The eligibility phaseout range for single tax return filers, for example, would start at $75,000 and end at $80,000. Eligibility would end totally for single taxpayers whose adjusted gross income (AGI) tops $80,000. Under the earlier bill proposed by the House, eligibility would have ended at $100,000.
Lowering the ceiling on eligibility will mean that 6.5 million fewer tax filers will receive a payment, estimates senior policy analyst Garrett Watson of the politically independent Tax Foundation.
The proposal could undergo additional changes as it moves through the Senate, toward a vote.
The relief payments are intended to help Americans cope with the financial impact of the coronavirus pandemic.
For most taxpayers, the key question is, How do you maximize your odds of qualifying for the largest possible payout?
What the question really means is, do you stand a better chance of getting a bigger stimulus check by filing your 2020 federal income tax return sooner? Or do your odds improve if you file later?
Stimulus Check Eligibility Rules
The answer will depend on the exact eligibility rules for stimulus checks that Congress bakes into its relief bill.
At this moment here’s what determines whether your stimulus check is bigger or smaller.
The amount you receive is based on three factors: your income, your filing status and how many dependents you have.
The IRS’ Different Types Of Income
“Income” refers to your adjusted gross income, or AGI. Tax season is when you are reminded that the IRS defines income in a variety of ways.
Taxable income is what the federal income tax brackets and rates are based on.
But the rules for the stimulus checks are based on AGI. AGI without (or before) any deductions is taxable income.
In any case, your AGI is the amount you enter on Line 8b of your Form 1040.
For a complete, plain-English rundown of what each type of income consists of, read this other IBD report.
An Extra Stimulus Payment For Dependents
Currently, the third stimulus check plan, which is part of the overall coronavirus relief package that Congress has been haggling over for weeks, is expected to provide payments of up to $1,400 for single taxpayers and up to $2,800 for married couples filing jointly.
In addition, President Joe Biden wants to give another $1,400 for dependents, no matter how old they are. They could be college students who happen to be older than age 16, for example. The proposal right now calls for the taxpayer to receive up to $1,400 per qualifying dependent, says Ken Van Leeuwen, CEO, Van Leeuwen & Company, in Princeton, N.J.
Remember, there are other provisions with different rules for benefits such as unemployment compensation and the child tax credit. Here, we are only talking about the pandemic stimulus checks.
Income Eligibility Phaseouts
So, that brings us to the final piece of the puzzle for stimulus checks. It concerns income eligibility. The size of any stimulus check you could receive starts to decline if your AGI is more than:
- $75,000 but lower than $80,000, and you file as a single individual or as a married person filing separately from their spouse.
- $150,000 but lower than $160,000, and you are a married joint filer.
- $112,500 but lower than $120,000, and you are a head of household.
Your eligibility for a stimulus check of any amount ends totally if you’re a:
- Single-filer or married filing separately whose AGI is $80,000 or more.
- Married joint filer whose AGI is $160,000 or more.
- Head of household filer whose AGI is $120,000 or more.
Those phaseout thresholds are lower than those the House proposed last week. The Senate’s lower phaseout threshold means that more higher income taxpayers would not be eligible for stimulus checks.
Eligibility would end totally once a single taxpayer’s AGI hits or tops $80,000 rather than the $100,000 proposed by the House. Married joint filers would not be eligible to receive any payment once their AGI reaches $160,000 or more.
The new phaseouts are also different from the first and second round of stimulus payments. Those phaseouts reduced the size of your stimulus by $5 for every $100 over the limit your income was.
Steps You can Take To Qualify For A Larger Stimulus Check
So, how can you influence how big your stimulus check is?
If you were among the millions of Americans who lost their jobs or income in 2020, you may very well qualify for a larger stimulus check by filing your 2020 federal tax return to the IRS quickly. That’s because the IRS will use your 2020 returns to calculate the size of your stimulus check. If it doesn’t have your 2020 return, the IRS will use your 2019 return, according to the Association of International Certified Professional Accountants.
What if your income went up in 2020? That might have happened if you worked for a company that helps businesses operate digitally or sell goods and services online. Or your income might have risen if you made a lot on the stock market, which went up.
Whatever lifted your income, if your 2019 income was below the phaseout range or total cutoff, then you should delay filing your 2020 return until the IRS figures your stimulus check size based on your 2019 income.
If necessary, get a filing extension to avoid lateness penalties and interest.
The Democrats’ Congressional leadership has said its goal is to put a bill on Biden’s desk for enactment by March 14. Checks could go out quickly after that. The IRS began the second round of stimulus payments a mere two days after that legislation was signed.
You would still have until April 15 to file a return and pay any tax you still owe for 2020. And you could always get a filing extension.
Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and active mutual fund managers who consistently outperform the market.
YOU MAY ALSO LIKE:
See IBD Stock Lists & Get Pass/Fail Ratings For All Your Stocks With IBD Digital
You Need This Much Retirement Savings At Your Age And Income
Check Out IBD’s New IBD Live Panel Discussion
How Long Will Your $1 Million Last In Retirement?
Which Stocks Are Breaking Out Or Near A Pivot Point? Check MarketSmith